Moody’s - a top rating agency says: ...it remains "unclear" whether The Bahamas' economic recovery can be sustained ...due to its dependence on the U.S. economy

Moody’s: The Bahamas Deficit expected to ‘accelerate’

Jeffrey Todd
Guardian Business Editor
jeffrey@nasguard.com

Nassau, The Bahamas

A top rating agency says it remains "unclear" whether the country's economic recovery can be sustained due to its dependence on the U.S. economy.

According to the latest credit opinion from Moody's, tourism arrivals and occupancy rates have improved in 2012.  The assessment has indeed been confirmed by top government officials in recent weeks.  However, revenues lag behind pre-recession levels, Moody's explained, depressed by competition from other Caribbean markets and weak growth in the U.S.

Stuart Bowe, the president of the Bahamas Hotel Association (BHA), noted in its last report that daily room rates continues to fall. Promotional investments and airfare offers have become increasingly common among tourism stakeholders. Although it brings people into the country, the approach has revenue implications.

As first revealed by Guardian Business, the Ministry of Tourism is rolling out a $6 million air credit program that will last all the way until the first quarter of 2013.

"Given increased economic uncertainties currently facing the U.S. - the Bahamas' major tourism market - it is unclear whether the economic recovery will be sustainable," the report said.

Analysts reported that the country’s financial deficit continues to widen, financed primary by short-term domestic borrowing.

"We expect this pace to accelerate as the government increases capital spending to support several resort developments and social spending on programs such as the mortgage support plan," Moody's explained. "Foreign currency debt, which accounts for 56 percent of total government debt, is on the rise as well, albeit at a slower pace."

That said, Moody's noted that the economy is on track to achieve growth of 2.5 percent in 2012, a fact recently confirmed by Michael Halkitis, the state minister of finance. The modest growth is being driven by "a modest recovery in the high value-added tourism sub-sector, public sector investment in construction, and foreign direct investment in the tourism sector".

Credit growth, however, has remained "relatively flat", according to Moody's, and the unemployment rate still hovers beyond 15 percent.

The rating agency noted the recent strides by the government to revisit the issue of taxation.

That development is welcomed by Moody's. Back in May, the rating agency felt increased spending was not being properly matched by new revenues.  The introduction of a value-added tax, for example, would bring The Bahamas in line with a number of other countries in the region and promote revenue stability.

The comments from Moody's follow a recent statement to Guardian Business by the International Monetary Fund (IMF) in Trinidad and Tobago. Caribbean leaders convened in Port of Spain to discuss rising Caribbean debt and limited prospects for growth.

For The Bahamas, mission chief for the IMF Gene Leon confirmed that the troublesome debt-to-GDP ratio of the biggest problem facing the country's fiscal future. He confirmed that the organization has provided debt management consultation services in the lead up to its visit in October.

Including its continent liabilities among public corporations, he said the debt-to-GDP ratio had fallen into the "gray zone" of above 60 percent.

Sep 10, 2012

thenassauguardian

The Bahamas cannot afford to "sit and wait" for economic recovery to be driven by the US - says James Smith, former minister of state for finance

Bahamas can't 'sit and wait' for US tide to lift recovery
By NEIL HARTNELL
Tribune Business Editor:



THE Bahamas cannot afford to "sit and wait" for economic recovery to be driven by the US, a former finance minister warned yesterday, urging this nation to "fix" its high cost base and structural inefficiencies, given that "unacceptable levels of unemployment" were set to linger post-recession.

Describing the recovery outlook as "fair to overcast", James Smith, former minister of state for finance in the Christie-led administration, told Tribune Business that to escape from arguably the deepest recession since the 1930's Great Depression, this nation needed to long beyond its traditional reliance on a rising US tide to lift the Bahamian boat.

"For us this time around I think we have to go beyond recovery in the US," Mr Smith said. "For us to participate in that recovery, we need to do more things to fix our major industry, addressing the cost, for the simple reason that during this recession our major travel market, the US, had the opportunity to see what was happening in our competitors, Cancun and other, where they have been a little more competitive."

Rival Caribbean destinations, with lower cost structures/bases, had been more competitive with US tourists seeking greater value and better prices, something that was borne out, Mr Smith suggested, by the fact that the Bahamas had - along with Jamaica - suffered the longest period of economic contraction.

The Bahamas had done "worse than other countries", the former finance minister added, pointing to the fact that while this nation had been among the first to slip into recession during the 2008 second half, it was among the last predicted to recover, with economic growth not forecast to resume until 2011.

"We've had two years of negative growth in GDP besides Jamaica. A lot of other countries are more competitive, so it suggests, broadly speaking, that there are other areas of the economy that needs fixing," Mr Smith told Tribune Business.

"One that springs immediately to mind is the cost structure and competitiveness in that area. As we look to recover, we have to do more than sit back and wait for it to happen. We have to address without delay our cost structure and making our main sector more competitive.

"This would be a good time to do it, while all are feeling the pinch and recognising the need to improve, so it would be easier to take the programme forward. They would realise we have to do a better job than we have been doing. We have to take this opportunity to improve the services we give at all levels, and the cost of these services."

Energy and labour were the two critical cost components that had to be addressed, Mr Smith said. While it was not practical to reduce wages, due to the high living cost in the Bahamas as well as the presence of highly restrictive trade union agreements, the former minister suggested that this nation tackle "fundamental issues" - enhanced efficiency, bringing pay in line with productivity, and "getting rid of wastage in the public sector".

"We know what to do, we just have to start doing it," Mr Smith said, describing the persistence of high unemployment levels (last officially measured at 14.5 per cent, but believed to be higher) as a "vexing problem for the Bahamas".

One factor behind the hotel industry's relatively high costs in comparison to rivals was that the Bahamas had "more people employed per room", and during the recession resorts had found ways to operate more efficiently with less staff following the late 2008/early 2009 lay-offs.

"The prospect of a return of jobs at the same level over a short period of time is pretty bleak," Mr Smith said. "Jobs have to be created in other areas, and we may find ourselves with unacceptable levels of unemployment for a long period of time, even after the recession has passed. We're really not seeing any signals out there that there will be a quick turnaround."

The former finance minister also expressed scepticism that the Government's increased taxes would not achieve the objective of plugging the Bahamas' fiscal deficit or reducing the national debt, as they were being impose against a backdrop of reduced national income and economic growth that was sluggish to non-existent.

"The increase has fallen disproportionately on the business sector, so we will not have them expanding and hiring people," Mr Smith said. "We might be in a Catch-22 position. The Government needs revenue, so it raised taxes, but it might not get paid in full because people are not working."

To move the Bahamas forward, Mr Smith said the Government and all economic stakeholders needed to dialogue and come to a consensus on a sustainable development strategy for the Bahamas, ensuring that issues such as public sector investment in education were not impacted when administrations changed - that policy stayed broadly in course, in line with a national plan.

He also warned against "trade offs", where the Bahamas sacrificed future generations - for instance, by compromising the environment - in return for development and foreign direct investment now.

August 27, 2010

tribune242

Bahamas Blog International